Belmont Club

And the Earth Began to Heal

A planned economy is one “in which the central government controls industry such that it makes major decisions regarding the production and distribution of goods and services … planners decide what should be produced and direct lower-level enterprises to produce those goods in accordance with national and social objectives.”

Planned economies are in contrast to unplanned economies, i.e. the market economy, where production, distribution, pricing, and investment decisions are made by the private owners of the factories of production based upon their individual interests rather than upon a macroeconomic plan. Less extensive forms of planned economies include those that use indicative planning, in which the state employs “influence, subsidies, grants, and taxes, but does not compel.” This latter is sometimes referred to as a “planned market economy”.

So when President Obama announced “details of a program to train 10,000 new American engineers every year” as a program of his jobs council what exactly was he doing?  Was he acting as a spokesman, giving guidance or “indicating” how he thought the economic engine should run?

The Washington Post suggests he was doing a little of both.

“Today, only 14 percent of all undergraduate students enroll in what we call the STEM subjects – science, technology, engineering and math,” Obama said at the headquarters of Cree, a Durham-based company that uses LED technology to produce fuel-efficient lighting. “We can do better than that. We must do better than that. If we’re going to make sure the good jobs of tomorrow stay in America, stay here in North Carolina, we need to make sure all our companies have a steady stream of skilled workers to draw from.”

Obama also urged U.S. companies to invest in making their buildings more energy efficient, which he said would save them money that they could then use to hire workers.

The president did not propose any new spending, but his proposals for the federal budget would increase funding for education, scientific research and other programs that Obama says will help Americans get jobs. It’s not clear if congressional Republicans will agree to those spending hikes.

But one of the subtle problems facing an economic planner is what to plan for. In setting targets the planner — let us say President Obama — must understand which variable of interest he must affect. He can pull the wrong lever, set the wrong target. For example, is graduating more engineers going to revitalize science and industry in America? A Christian Science Monitor-sourced story says that experts are divided on whether there is actually shortage of supply of STEM graduates or a shortfall in demand. In the view of some it is the jobs that are missing.

“STEM” programs, as they’re called, have rare bipartisan support in a Congress worried about the United States’ economic competitiveness. Business groups are pushing for more funding. President Obama has called the crisis “our generation’s Sputnik moment….

Change the Equation, a group of more than 100 chief executive officers that formed last year to focus effective philanthropy and change standardized testing of STEM subjects at the state level, is driven by worries that the US economy and national security could become compromised if education falls behind. …

But policymakers may want to take a closer look at the numbers before they take more action. Although the US has dropped slightly in its share of the world’s technical publications and cited work, “on the whole the evidence did not support that we had a shortage of STEM workers in the economy,” says James Hosek, a researcher at the RAND Corp. in Santa Monica, Calif., and coauthor with RAND’s Titus Galama of a 2008 study on the issue.

Where are the STEM jobs? Some of them have gone to graduates of the Indian Institute of Technology. According to some points of view global labor arbitrage will mean that all jobs — including STEM jobs — will begin to seek their most competitive level. If they are overseas that’s where they’ll go. If they’re in America, that’s where they’ll go. In that view, the absolute number of STEM graduates in a country is less important than whether it makes sense for the industries to be there.

Certainly from the domestic point of view the demand is king. The Wall Street Journal notes that “some 37% of all net new American jobs since the recovery began were created in Texas.” Since Texas is notably contrarian to Hope and Change, the question is whether those jobs were created because of the administration’s planning or in spite of it.  All the same, both companies and job-seekers will go where it makes sense to go, in this case Texas. Increasing the number of STEM graduates from California educational institutions won’t help the Golden State if they wind up moving to Texas.

Using Bureau of Labor Statistics (BLS) data, Dallas Fed economists looked at state-by-state employment changes since June 2009, when the recession ended. Texas added 265,300 net jobs, out of the 722,200 nationwide, and by far outpaced every other state. New York was second with 98,200, Pennsylvania added 93,000, and it falls off from there. Nine states created fewer than 10,000 jobs, while Maine, Hawaii, Delaware and Wyoming created fewer than 1,000. Eighteen states have lost jobs since the recovery began.

Increasing the number of US engineers won’t help if the jobs move completely offshore. Borders preclude the possibility of US graduates moving to fill them. Once they’re gone, they’re gone. But why are they going? That raises the question of whether the variable President Obama is attempting to manipulate is the factor he should be trying to change.

King Canute arranged an experiment for his courtiers to illustrate the limits of government fiat. He had his retainers carry him to the seashore where he commanded the tides to remain where they are. They advanced despite the Royal Decree. The King then turned to his followers and explained the limits of Central Planning.  “Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and sea obey by eternal laws.” Substitute the notion of Reality for God and you have a very powerful Canutian argument for respecting market forces that even declared atheists will find persuasive. Policies work only when they are correct. They can never make what is wrongheaded into a valid policy regime.

“No Way In” print edition at Amazon

Tip Jar or Subscribe for $5